Demand Forecasting

Forecasting is predicting or expecting the needs of consumers in the future. Demand forecasting for products is an essential function for any organization, regardless of its nature. It involves predicting what products and services will be needed, where, when, and in what quantities. Demand forecasting is a proactive process focused on understanding customer demand. It supports various planning activities such as capacity planning, inventory management, and overall business planning. Many organizations regularly forecast demand to plan production effectively. Demand forecasting is crucial not only at the firm level but also at the national level. The purposes for demand forecasting include:

• It serves as a road map for production plans.
• It plays a significant role in uncertain production or demand situations.
• It facilitates managers in aligning their business activities.
• It forms a basis for export and import policies and fiscal policies.
• It helps businessmen make decisions regarding inputs of the production process such as labor and capital.

Characteristics Of Good Demand Forecasting

1. It is in terms of specific quantities.
2. It is undertaken in an uncertain atmosphere.
3. A forecast is made for a specific period of time sufficient to make decisions and take action.
4. It is based on historical information and past data.
5. It provides an approximate estimate of future product demand.
6. It is based on certain assumptions.
7. It cannot be 100% precise as it deals with expected future demand.

Demand forecasting involves estimating the quantity of a product or service that consumers will purchase. Techniques range from informal methods like educated guesses to quantitative methods using historical sales data or current test market data. Demand forecasting is used to make pricing decisions, assess future capacity requirements, and decide whether to enter new markets.